I have written many times about the economic implications of corruption in politics, resulting in what are now ingrained and endemic corrupt practices in government. This is not unique to ANC-led politics or government. The private sector is as capable, if not more, of corrupt practices that have equally negative and long-lasting effects on society.
It is important to state the obvious, for there are some who will be tempted to say that corruption is a post-1994 phenomenon.
I have always been wary of the dominant hand of politics over the economy. I become even more concerned when the direction of policies on economic matters is subjugated to political ideology – especially at a time when pragmatism to the veracities of a changing world economy is needed and must be accompanied by flexible implementable plans.
To cure the former, South Africa must take in quite large doses of a bitter medicine known as ‘economic realities’ if it is to release the choking hand of politics from economic pragmatism. As things stand, the chances of curing the economy towards positive growth don’t look good.
I will use two recent developments to illustrate the impact politics has on the economy, directly or indirectly.
Impact insight No 1: Corruption deters investment hugely
GDP data for the fourth quarter of 2018 released by Statistics SA last week indicates a country in its fifth successive year of diminishing growth, with an annual growth rate of more than 2% not achieved since 2013.
This affirms the economic predicament South Africa is in – sluggish growth typified by a decline in some primary and secondary sectors. According to Stats SA, the mining and construction sectors are in recession, with both recording negative growth in third and fourth quarters of 2018.
Mining alone fell by 3.8% and this is not helped by the ongoing dispute at the Sibanye-Stillwater gold mine, possible retrenchments across the sector, and the upcoming platinum wage negotiations.
Furthermore, as I wrote in my column just last week, joblessness is increasing. Nearly half of country’s working age population is unemployed and the demographics are leaning towards a young future South Africa.
Considering all of the above, it is difficult not to sound gloomy. However, one would have to be naive or blissfully ignorant not to see the situation as grim.
I acknowledge that there are multifaceted reasons for five years of static growth that are outside the range of this article.
For one, corruption that enables theft will trump investment. When state-owned enterprises, municipalities and government departments are used as a way to siphon money to family and associates then shamelessly mark it as fruitless and wasteful expenditure, it discourages those who would otherwise be investing in the country – especially when the country’s own auditor-general’s disapproving report finds such siphoning to amount to billions of rands of irregular expenditure.
I’m clear when I say corrupt practices that enable the theft of billions in state money will always discourage any potential investor. Although they may be optimistic about the potential return on their investment, or the positive impact it may bring to the country, they will be cautious of being sucked in to the endemic corruption and be subjected to demands for bribes. Instead, they cautiously observe – or go elsewhere.
It is corruption, theft, misuse and misallocation of resources, as well as poor performance by municipalities and government departments, that has repelled investment. The underperforming economy, persistent unemployment and the continuing factional battles within the ruling alliance have not helped the country’s case.
Impact insight No 2: Investors are returning to emerging markets, and we’re about to miss out
It is a sad irony that South Africa, potentially so promising, has in the past 14 days seen its stocks being dumped in high volumes. This despite the country “being the cheapest on record relative to their emerging market peers” according to a Bloomberg article, Foreign Investors Are Fleeing South African Stocks for the reasons outlined above and others. For instance the supply of electricity is a big factor because of the risks it poses to business operations and productivity.
The decline of the country’s economic growth is as steep as its rise post-1994.
Apart from growth during the Thabo Mbeki years (1999 to 2008), although also plagued by unemployment, there hasn’t been any significant economic intervention that has spurred growth.
And unfortunately, the world economy doesn’t wait for any country to sort itself. It moves forward, and countries that are struggling are left behind.
The Institute of International Finance theorises that investors who withdrew funds from emerging markets last year are returning due to the lessening worry about the world economy. Is South Africa about to miss out on this investment? The potentially dynamic economy has been reduced to a state of sickness and is unable to get going. The ideas from the politicians have so far failed to lift it.
Once a country is off the pace, the global economic machine that it is marching on, it will be difficult to catch up. Even if bold action is taken, it takes years for economic growth to return. China, India and Brazil all eventually did something to get where they are.
If a country’s economic-political condition is captured by these variables: ideas, policy and growth, and assuming that the former can lead to suitable and relevant policies that may spur growth, we may have a chance.
If not, then South Africa is waist deep in a steaming pile of elephant dung.